Help to Buy ISA vs Lifetime ISA – which is right for you?

There are two ISAs that can help you save for your first home; the Help to Buy ISA and the Lifetime ISA.

Get a government bonus

Both Help to Buy and Lifetime ISAs offer a 25% bonus on your savings when you use it to buy your first home – but there are some important differences which we will explore in this article.

Help to Buy ISA

The Help to Buy ISA is closed to new applicants.

If you already have a Help to Buy ISA you can continue saving up to £200 per month into it until November 2029.

You can save up to £12,000 into a Help to Buy ISA and receive a 25% government bonus (up to £3,000) when you use the money to buy your first home. This bonus is paid when the house purchase has completed, which means the bonus cannot be used for the deposit. You must claim the government bonus by December 2030.

The property must be worth £250,000 or less, or up to £450,000 in London to qualify for the bonus.

Lifetime ISA

Lifetime ISAs are still open. You can save up to £4,000 each year into a Lifetime ISA and receive a 25% government bonus as long as it is used to buy your first home or to pay for your retirement at the age of 50.

With a Lifetime ISA you can use the money for your deposit and your mortgage, and the property must be worth £450,000 or less.

Unlike the Help to Buy ISA, the government bonus is applied monthly, but if you withdraw money for reasons other than buying your first home or for retirement, it is subject to a 25% charge.

You can open a Lifetime ISA if you are a UK resident aged between 18 and 39. And you can pay into the account until you reach the age of 50.

You must not have owned a property before if you wish to use the bonus to buy one. The Lifetime ISA must be open for a year before you can use it.

You cannot receive the government bonus on both

You can only receive a government bonus on either your Lifetime ISA or Help to Buy ISA, you cannot receive the government bonus on both.

In conclusion

The right ISA for your needs depends on a number of factors – including the value of the home, how much you want to save and whether you are happy to wait for the purchase to complete before you get the government bonus.

Those with a Help to Buy ISA can transfer up to £4,000 of their savings into a Lifetime ISA each year, minus any other Lifetime ISA contributions.